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Monday, February 12, 2007

Climate is changing. Now what?

by Marcelo Rinesi: Buenos Aires

From the point of view of the global economy, the IPCC report can be summarized thus: The energy infrastructure of the planet's economy proves to carry big and growing costs (the ecological, societal, and economic impact of climate change).

As in any case when a technology or resource proves to have high attached costs, we have three (not mutually exclusive) ways to deal with this issue:

We can reduce our use of the technology, in this case by greater energy efficiency and lessened consumption. There are important reasons why this should be done -some energy efficiency measures are self-financing even in the absence of costs associated with climate change, and reduced fossil fuel consumption will somewhat delay and reduce the scale of climate change- but it's important to note that this is problem mitigation, not a solution. Most energy used in a city -where most humans live- isn't spent on what you might call "energy luxuries", but on the very infrastructural and industrial processes that make it possible for us to live, in the mean, better than our grandparents did. You can take a single house off the grid, but what about Rio de Janeiro, or an entire industrial belt? By and large, "green" means "relatively not so bad as the usual," not "sustainable in a way scalable to a multi-billion global society who doesn't particularly want to go back to farming and occasional plagues as a way of life."

An alternative is to learn to live with the associated costs in the most efficient way possible: preparing our infrastructure for more frequent extreme events, strengthening food production and distribution networks to smooth food supply variability, figuring out a way to deal with migratory and epidemiological patterns triggered by shifting climate patterns, etc. It's difficult and expensive, but, as no matter what we do now, it's certain that climate patterns will shift, doing this makes sense. On the other hand, it's again problem mitigation, not solution. We don't have the technology or the resources to deal with long-term climate disruption in a purely reactive way.

The third alternative, of course, is finding alternate sources of energy. Renewable sources like wind and solar energy are the most popular, although I'm not sure we can support existing -not to mention rising- energy demand using them; in the long term, probably something like widespread nuclear or fusion technology (once it's available) will be necessary to take the torch from fossil fuels. In any case, shifting the global economy's energy sources will, at best, be staggeringly costly and rather slow. There's no choice but doing it, but it won't happen overnight, it won't be easy - and it won't shield us from the backlash of our past and current technologies.

In a best case scenario, a mixture of those strategies would be best: massive research and development on alternate energy sources, while temporary energy conservation and impact mitigation measures are taken to weather (no pun intended) the transition period.

In a realistic scenario, though... There are two interrelated strategic problems standing on the way of a reasonable, effective response:

Symbolic conservation measures (like California's amusingly named "How Many Legislators Does it Take to Change a Light Bulb Act") deliver a lot of the political benefits of a climate-conscious policy with few of the costs. Conservation by itself doesn't work -and much less if it's only implemented piecemeal- but, from the point of view of politicians, that's not a big concern. Much like saving the pandas, it might not be realistically relevant policy, but it sure looks good.

Disaster preparedness measures benefits those who spend money on them, while technology replacement will be very expensive, and (until it's surpasses the convenience of fossil fuels) won't benefit anybody until most countries invest on it. Hence, more money will be spent on the former than on the latter, despite disaster preparedness being only an stopgap measure.

So far, the response to the IPCC report doesn't give me much hope about a global, effective response to this problem. We dropped the ball once on climate change, delaying so much its near-unanimous recognition as a global policy problem. We better get the solution right.

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Welcome to Global Economy Matters. Posts on Global Economy Matters are written by macro economists and policy analysts who have a common interest in global macro and economic policy.

Claus and Edward's "Baker's Dozen"

Claus Vistesen and Edward Hugh are proud and happy to announce that they are now working as "featured analysts" with a new Boston-based start-up - Emerginvest.

Claus and Edward have used a new, updated, methodology in order to identify a group of 13 emerging economies which we consider are going to outperform both the rest of the emerging economy group and the OECD economies in terms of a number of key performance indicators over the 2008 - 2020 horizon.

Through our association with Emerginvest we hope to develop performance indicators which will confirm both the relevance and validity of the selection procedure adopted.

We would like to point out that we have absolutely no financial connection whatsoever with Emerginvest - although we do heartily endorse what they are trying to do.

In particular we see the move by the investment community towards emerging markets as one of the most effective and direct ways to address those issues of inter-country wealth and income imbalances which have plagued our planet for so long now - namely by getting the money from the rich who have it to the poor who need it.

Sending investment to emerging economies is also a way of addressing the underlying imbalances which exist between the relatively older populations of the developed economies who increasingly need to save, and the relatively younger emerging economies who can benefit from the investment of those savings in their countries. So in a way you can both ensure the future of your own pension and help attack poverty at one and the same time. This type of possibility is normally known in economics as "win-win".

The oldest known source and most probable origin for the expression "baker's dozen" dates to the 13th century in one of the earliest English statutes, instituted during the reign of Henry III (r. 1216-1272), called the Assize of Bread and Ale. Bakers who were found to have shortchanged customers could be liable to severe punishment. To guard against the punishment of losing a hand to an axe, a baker would give 13 for the price of 12, to be certain of not being known as a cheat. Specifically, the practice of baking 13 items for an intended dozen was to prevent "short measure", on the basis that one of the 13 could be lost, eaten, burnt or ruined in some way, leaving the baker with the original dozen.